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Tax: There’s No Place Like Home

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To reduce the deficit, UK Chancellor George Osborne announced a number of measures in his latest budget, including a significant extension to the package of taxes that affect UK residential properties held by non-natural persons, including companies.

This is of relevance to some private clients as the decision to hold residential property for personal use via a company can be made for various reasons, including anonymity. Family investment companies also often own residential property for rent. Although there are exemptions to the below taxes (outlined in Figure 1) where the property is purchased as a rental property/ development, there will be an increased administrative burden as the exemptions need to be claimed. The Government has acknowledged this and there will be a consultation on how to simplify the system.

These rules previously had effect when a property was worth more than £2m but they will now bite at £500,000. In London you can well imagine that many properties breach this lower mark.

Taking effect from Budget Day, the 15% Stamp Duty Land Tax (SDLT) rate applies to the purchase of UK residential properties worth more than £500,000 by non-natural persons. This is compared to the SDLT rate of 4% which applies if a property worth £500,000 – £1m is purchased by a private individual.

There were also changes announced in relation to the Annual Tax on Enveloped Dwellings (ATED), which applies to properties already held by non-natural persons.

All properties affected by the new ATED bands will also be subject to Capital Gains Tax (CGT) on disposal, at a rate of 28%, taking effect from the annual charge dates outlined above.

We are told that approximately 12,000 individuals are estimated to be indirectly effected by this measure and the Exchequer impact is said to be £35m for the 2014/15 tax year. Some private clients may still wish to consider holding property in this manner as other benefits outweigh these costs. It is important to consider many different facts when deciding the optimum holding structure.

High-value residential property is an easy target for raising taxes and this Budget has certainly taken advantage of that. It is noteworthy that the ATED applying to properties worth more than £2m raised five times more than amount that was forecast for 2013/14, which explains perhaps why they are expanding the net.